Will the Fed's interest rate increase affect credit card debt?

The Federal Reserve decided to increase its interest rates by 0.255 of a percentage point this week. The interest rate increase follows seven years of a rate that was approximately zero. The last interest rate increase happened in 2006, which was before the iPhone even existed.

For people who are currently holding onto credit card debt, their interest rates will likely increase because few credit cards have fixed rates these days. Credit cards with variable interest rates usually alter their rates in response to changes to the "prime rate," which is typically about 3 percent over the Fed's rate. As such, cardholders will likely see a slight increase due to the 0.225 of a percentage point rise from the Fed.

According to a spokesperson for NerdWallet, it may take about a month before interest rates are adjusted on credit cards, and some might not see an increase until the next quarter. However, for people with new credit cards, they will see an immediate increase.

Borrowers will be affected depending on how much debt they have on their credit cards. The average interest rate on credit cards is 18 percent, so a $5,000 debt would likely see about a $1 per month increase in interest accrual. According to average household credit card debt figures in the United States, most households will see an increase of $125 relating to credit card interest debt expenditures over the next five years.

Credit card debt can represent an intense financial strain on Ohio families. If your family is struggling to pay credit card bills that it cannot afford, you may want to consider whether bankruptcy proceedings are right for you.

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